Time to read : 3 Minutes
Elton John once sang that sorry seems to be the hardest word.
That doesn't seem to be the case for the Reserve Bank chairman Phillip Lowe, who fronted up to the Senate today and issued an apology to mortgage holders.
In his own words –
“I’m sorry that people listened to what we’d said and acted on that, and now find themselves in a position they don’t want to be in. At the time we thought it was the right thing to do.”
In the back end of 2020 and all of 2021 Dr Lowe said the RBA didn't expect interest rates to go up until 2024.
Homeowners rushed to snap up ultra low fixed-term mortgages that were available from as low as 1.79%.
Many people fixed for 1-3 years to take advantage of cheap credit before rates started to rise.
The first wave of low rate fixers rates are now expiring - and homeowners can't get a rate under 4%.
In some cases people are unable to refinance and get trapped in "mortgage prison".
Philip Lowe has made a few other speeches recently about the economy. Here's what homeowners can expect next year according to the RBA.
What is the RBA and Philip Lowe predicting for Australian homeowners in 2023?
We've seen an unprecedented seven cash rate hikes in a row, from 0.10% through to today's 2.85% – and all signs point to it being eight rate rises next Tuesday.
👎🏾 The outlook is still grim, with experts predicting that we're looking at a 0.25% increase for December. This will bring us to a 10-year high of 3.1%.
📈 In a recent speech, Governor Lowe expected inflation to peak at 8%. Given it currently sits at 7.3%, households should brace for more pain. Sorry.
🏠 Someone on a 25-year $600,000 mortgage with a variable rate of 2.79% back in April and who hasn’t (or can't) refinance, could now be paying an extra $919 a month – that's $11,028 a year.
🎙️ And as Phillip Lowe says himself, we could see more big interest rate hikes:
"Given our mandate for price stability and full employment, the Board expects to increase interest rates further over the period ahead. We are not on a pre-set path though. We have not ruled out returning to 50 basis point increases if that is necessary... The Board’s priority is to return inflation to target over time."
FYI: the RBA's target inflation rate is 2% - 3%.
The very bottom line
Until inflation starts to come down, it is likely that interest rates will keep going up.
🎄Yes, even for Christmas. Bah, humbug!
💸 That's not good news for homeowners - and also more broadly for everyone in the short run because just about everything is going to cost more, including home loan repayments.
🐲 The RBA is hopeful of slaying that inflation dragon by the end of 2024. We'll have to wait to see if there's another apology from the governor in two years' time.
